Even though investors are buying, they won’t say they’re bullish in sentiment surveys. The Advisor & Investor Model (AIM) is a model that averages the momentum of the four major sentiment surveys. It has been below 50% for 6 months, one of the longest streaks since 1970.

Among active investment managers, even the most bearish one is betting on a rally, which is a break from other surveys which mostly show apathetic sentiment. Unlike other surveys, this one has less of a contrarian bent, however.

Call buyers return

On the ISE exchange, recently, there were more than 200 call options bought for every 100 puts. That’s typically interpreted as a sign of excessive optimism from options traders.

August 19, 2018

In one way, shape, or form, we’re all prone to some form of addiction or bad habit. Whether it’s food, adrenaline, TV, we all have a psychological or physiological “need” for something that we could probably afford less of.

Every second you spend or decision you make trying to fight that compulsion depletes your ability to say “no” to it the next time. If you want to permanently change your relationship with something ... willpower, alone, may not get you there.

That same principle applies to pursuing success or personal progress. The trick is recognizing that you can create conditions that make your success much more likely.

It's increasingly apparent that privacy in today's digital age is a farce.

If you want to actually stop Google from tracking location (short of selling all of your material possessions and living off the grid) turn off your device information, location history and web activity here. This will depersonalize your searches as well - so your ads will (hopefully) not know your deepest darkest secrets anymore.

Here are some of the posts that caught my eye recently. Hope you find something interesting.

Ultimately, the Market is not the Economy. And, traders have not been skittish recently.

In addition, markets aren’t governed by the laws of physics ... so, what goes up doesn’t really have to go down (at least not all the way).

However, there are signs of underlying weakness. And while markets are impossible to predict, and history doesn’t really repeat itself (though it often rhymes) ... a number of indicators are flashing that have previously signaled a recession.

A trader knows that a trend continues until it breaks. This one hasn’t broken.

I was recently informed by the owner of an artificial intelligence fund that markets do not listen to economists anymore. Rather than immediately dust off my CV and see what transferable skills I might have, I dug around for evidence of his claim and found there was something to it.

A fundamental shift in market structure towards rules-based, passive investing over the past decade means a lot of trading is no longer based on fundamentals. But just because some markets do not pay attention to economists, it does not mean economists should not pay attention to these markets. On the contrary — this shift in market structure could well be a trigger for the next global downturn. The US Federal Reserve is concerned enough that “Changing Market Structure and Implications for Monetary Policy” is the topic for this year’s economic symposium in Jackson Hole.

JPMorgan notes that only about 10 percent of US equity investment is now done by traditional, discretionary traders. AI quant funds use powerful supercomputers to crunch huge amounts of data, unearth patterns and survey trading strategies across different markets in real time. They do not care why markets move, only that they do.

These funds are not waiting on tenterhooks for my analysis of every non-farm payrolls report, Fed press conference, Donald Trump tweet, or earnings report. Instead, they look for trading strategies that are succeeding and adopt those strategies until a better one comes along, regardless of the underlying fundamentals. But what happens when the strategy suddenly becomes to sell everything? Will the computers find the buyers they need?

Passive investments, such as exchange traded funds (ETFs) and index funds, similarly ignore fundamentals. Often set up to mimic an index, ETFs have to buy more of equities rising in price, sending those stock prices even higher.

...

Passive investors and quant funds could also threaten the economy by making markets vastly more complex, noisy and opaque. They send mixed signals to active investors about what the fair value of a stock is. That could cause a significant misallocation of capital.

The danger is exacerbated by the speed at which trading is now done. The average holding period for a security on the New York Stock Exchange has fallen from two months in 2008 to just under 20 seconds today, according to analysis from Cumberland Advisors. Market regulators have put circuit breakers in place, but the flash crashes we have seen suggest they may not work in a crisis.

Systemic failures, misallocation of capital and dried up liquidity could cause a bear market, dragging on growth when the economic backdrop is already lackluster. Do not be fooled by the 4.1 percent growth in gross domestic product in the second quarter of 2018. The underlying fundamentals of the US economy leave a lot to be desired. A market crash — worsened by systemic effects — would probably send the economy into a tailspin.

So even though passive investors ignore economists, economists should pay attention to risks posed by the shift in market structure they represent. One would be hard pressed to find a customer willing to hand their money to an investor who genuinely does not care about fundamentals or price. Yet this is the strategy pursued by passive and quant funds.

This is not to say these funds are necessarily bad. But the real test will come when there is a sudden crisis followed by a sustained bear market. If markets stay liquid, my AI friend might be right. If not, I will be waiting by the phone to discuss the fundamentals that might lead to recovery.

Imagine owning 10% of the most profitable company in the world ... now imagine selling your shares for $800 dollars.

You've now put yourself in the shoes of the little known third co-founder of Apple, Ronald Wayne.

Crazy ... but true.

You'd think that lack of foresight would be rarer - but people are often more focused on the risks and prior obligations instead of the potential. In fact, during Apple's early phases, HP and Atari both opted against investing for ownership.

August 05, 2018

We’re past the midway mark for 2018. It has been an interesting year for America and for technology. At the beginning of the year, Nasdaq released its predictions for this year’s FinTech trends. I think it’s worth seeing how they've held up.

Nasdaq has been around since 1971 when they launched the world’s first electronic stock exchange, and they’re doing their best to hold innovation as one of their core tenets. According to them “recent advances in technologies such as blockchain, cloud computing, machine intelligence, behavioral science, and other areas provide us with the opportunity to literally rewrite tomorrow and drive our industry forward in entirely new ways.”

They identify four key trends and seven advanced technologies that will start to converge.

Four Key Trends

When evaluating a new product or market, trends are an important factor. The four key trends Nasdaq foresees are as follows.

First, is the development of the marketplace economy, an evolution in the purchase and sale of non-financial assets using market mechanisms that allow for real-time negotiation on price.

Second, is investment banks demonstrating an interest in partnering with firms to develop new technologies that can drive their businesses into the future.

Third, is the big data explosion which combined with advances in machine learning creates a myriad of opportunities in market surveillance, data analytics and in the capital markets themselves.

If one thing is apparent, innovation is the golden thread between it all. Finance is quickly becoming synonymous with FinTech as finance and technology becomes inextricable.

Seven Key Technologies

Cloud technology is maturing and adoption is accelerating. People are recognizing that several types of workload work more efficiently in the cloud. It’s not right for everyone, and the scale and speed of adoption will differ for different industries, but hybrid cloud experiences will be widely adopted by organizations.

Machine intelligence is helping firms find an edge in an increasingly tough landscape. Machines are getting better at interpreting data and creating structure from unstructured data (80% of the world’s data is unstructured, according to Gartner Group). Machine intelligence is also enabling real-time broad-spectrum surveillance.

Behavioral Science is increasing sophistication by increasing insights from human factors and cognitive analysis. This can bolster machine learning as well as improve workflow and user interfaces.

Blockchain is rapidly moving towards commercial applications, with proof of concepts becoming pilots and soon live products. Lots of activity as well in the crypto space.

Pari-mutuel technology can be applied to create new products. Bilateral trading works when you have a liquid market, but it's not always possible to find a counterparty. Pari-mutuel (pool-based) models enable more products - as long as there is still differing sentiment. This also allows more customized positions.

Cybersecurity is becoming more and more necessary as cyberattacks increase. Cybersecurity is evolving and becoming an issue and focus for not just firms but individuals. Reminder: Here are some cybersecurity tips I put together last year.

Quantum Computing - while exciting - has no clear timeframe of adoption. It's an emerging technology but has the potential to radically transform the trading landscape by increasing the rate at which we perform optimizations and calculations.

If you’re interested in seeing the whole report you can download it here.